Tuesday, October 29, 2013

A
few weeks back I posted a brief economic history of the US in the
post-war period in order to set up how the ecological economics movement
took root in the mid-1990s. Ecological economics is a critique of
classical and neoclassical economics that seeks to create a steady state
economy that is focused on full employment and natural sustainability
rather than economic growth. The critique is detailed and multi-faceted,
but it focuses primarily on two aspects of modern economics: growth and
accounting. Today I'm going to take a look at the first of those.

In his book Supply Shock: Economic Growth at the Crossroads and the Steady State Solution, Ecologist Brian Czech provides an excellent
history of how growth came to be the dominant goal of all world
economies, but the tale is too detailed for me to dive into here.
Regardless of the history, the end result is the same: the mainstream
view of all economies is that growth should be the primary economic
goal. The belief in growth has been so dominant for so long that
questioning it is tantamount to heresy.

But that is exactly what ecological economics has in mind.

In order to field their critique of growth, ecological economists reach
back to an unlikely place: classical economics. One of the chief things
that distinguishes classical economics from neoclassical economics, is
that fellas like Adam Smith understood implicitly that all human economy
comes from surpluses created through manipulation of the natural world.
Essentially, without agriculture, mining, logging, etc. there could be
no secondary human economy. Thus, the classical economic inputs were:
labor, capital, and land (natural capital). This stuck for almost two
hundred years until, believing that natural capital was effectively
unlimited, neoclassical economists decided to focus almost exclusively
on the other two inputs: labor and capital. This oversight has continued
to the present day, with nearly every economic model, and even the very accounting standards that rule the global economy, ignoring natural
capital or taking it as a constant.

The problem is that in the last hundred years it has become
increasingly apparent that natural capital is far from unlimited, but
our economic models and accounting standards have not adapted to the new
information. Or rather, they've adapted with a band-aid of sorts, by
asserting that technology will be able to make use of natural resources
so efficiently that it will be as if natural capital is unlimited. This
is, of course, possible, but in the thirty years since that theory was
put forward, technological efficiency hasn't come close to outstripping
our use of natural resources.

So what does this have to do with growth? Well, classical and ecological
economists both understand that, if all human economy derives from a
surplus of natural capital, then human economy can not continue without
natural capital, thus growth in the human economy must necessarily use
more natural capital.

To understand the predicament we're in, I like to use Brian Czech's analogy of
the gorilla in a cage. The cage is the earth, constant, limited,
protective; and the human economy is the gorilla, dynamic, struggling
against his bounds, and eager to grow. As you can see from this analogy,
the gorilla has only two sane choices: stay the same size, or shrink. Growing bigger will only kill the gorilla. Thus it is with the human
economy; unlimited growth in a limited world will ultimately create a
disastrous situation for our grandchildren and great-grandchildren because
any use of natural resources beyond what is necessary to provide a
comfortable living for the world's people is effectively stealing from
the stores our grandchildren and great-grandchildren will have to draw
from for their economy.

And yet, economists and politicians the world over continue to use
growth as the chief measuring stick for the health of the world's
economy. This has grown partially from a misguided belief that a rising
tide raises all boats. This was true to a certain degree while
resources were plentiful and cheap, but in era of dwindling resources we
should see exactly what we are already seeing to a certain degree: more and more
resources diverting to the upper echelons, while the lower two-thirds of
society struggle to get by. This is because as resources become more
expensive those at the top can absorb this increase, while those in the
middle and bottom will either eschew common resource consumption
patterns, or spend themselves poor trying to keep up.

Continued reliance on growth not only is incapable of providing the most
economic bang for your buck, so to speak, but it could lead to a
wholesale economic collapse of the human economy if the natural capital
we rely on most becomes too scarce. It is well documented that complex
systems tend to collapse terrifyingly fast, after seemingly absorbing
blows for decades. And most models of resource scarcity show a curve
that bumps along at the top for quite awhile before the bottom drops out and the curve careens exponentially down to zero. After all, resource
scarcity is not really a matter of supply dropping off, so much as
demand outstripping supply so that prices rise so high that demand
collapses. Growth practically guarantees that collapse in demand, which is what Czech means by a supply shock: after repeated price shocks due
to demand outstripping supply, demand finally collapses. After all, look
at how dramatically the oil shocks of the 1970s altered the automotive
and oil and gas industries. Now imagine the shocks become permanent.
Already, we are facing a drawn-out sluggish "recovery" partially due to
stubbornly high resource prices.

What the ecological economists offer as a balm for the overheated
ecstasy of growth obsession is something called a steady state economy,
which focuses instead on full employment and sustainable use of natural
capital so that future generations might have the same, if not more,
natural capital than we have today.

That's enough for today, but next week we'll discuss the reality of a full employment, steady state economy, w/r/t population and
efficiency.